Leverage regulatory reform in China, but mitigate the risks

January 22, 2019 Becky Hurt

By Vincent Duan, Principal Consultant

Sweeping regulatory reforms in China have dramatically reduced review and approval times by the National Medical Products Administration (NMPA), formerly known as the China Food and Drug Administration (CFDA). The country changed its process to fast-track new drugs in 2015, and a recent report (the last one issued by a standalone CFDA before it was reorganized into the NMPA) indicates that drugs with “priority review” status are processed in an average of 59 days. In the first nine months of 2018, 30 innovative foreign drugs were approved in China,[1] including:

  • PD-1 inhibitors Opdivo and Keytruda (approved in June and July, respectively)

  • PARP inhibitor Lynparza (approved in August)

  • Tyrosine kinase inhibitor Alecensa (also approved in August)

Yet, despite progress, industry leaders still worry whether the reforms are permanent or if NMPA might revert to its former ways, with approvals lagging Western regulatory agencies by years. Beyond approval, companies also worry about navigating China’s fragmented and complex state health insurance system, which provides health care coverage for roughly 90 percent of the country’s roughly 1.4 billion people.

Strategic choices can maximize opportunities

Based on research and deep experience in the region, it’s clear that China is irreversibly committed to overhauling its pharmaceutical industry and regulations because doing so allows it to better compete with advanced economies. Although the reimbursement system is complex, drugs addressing unmet needs are likely to be paid for, albeit at lower rates than list prices.

Companies that fail to take advantage of reforms in China, currently the second largest pharmaceutical market in the world, are sitting on the sidelines of an enormous opportunity. While some challenges remain in the market, well-informed choices can mitigate risks. Here are four ways to craft an effective strategy:

1. Consider moving China near the top of your global submissions sequence.

Traditionally, companies have submitted marketing applications in China after those in the United States and Europe. With statutes changing, companies will get broader data exclusivity protections by filing Chinese applications at the same time they file in the U.S. and Europe. This significantly extends the time period during which a pharmaceutical company retains exclusive rights to its data and no company can use it as a reference to produce and sell a generic drug on the Chinese market. For example, small-molecule drugs receive six years of data protection while biologics receive 12 years of protection when they are first approved in China. The same products, except orphan drugs and pediatric drugs, would receive a shorter data protection period if the Chinese approval lags those in other countries. And drugs that enter the market six years or more after their approval outside of China would be granted no data exclusivity protection.

So, unless it is an indication for a rare or pediatric disease, a long delay in seeking Chinese approval carries significant loss of data protection exclusivity. As a result of these policy variations, companies must consider carefully the nature of their drug and approval timing.

2. Foreign clinical data is now accepted, but still plan on conducting some studies in China.

Companies must decide on a case by case basis whether to run trials in China itself (before the reforms, it was mandatory for approval). Although foreign clinical trial data is now accepted and some drugs (such as those that treat rare diseases or unmet medical needs) can be conditionally approved, companies may need to conduct ethnic studies if necessary or post marketing studies in China and, for most drugs, confirmatory efficacy trials in China will be required.

The good news is that clinical trial applications (CTAs) are now processed in 60 working days (versus the six months that was standard pre-reforms). As a result, building up the capacity (or engaging external resources with the capacity) to run clinical trials in China is prudent for companies seeking long-term penetration of this vast market.

3. Adapt your China strategy according to your business and product portfolio.

Each company needs a different business strategy for China: one size will not fit all. For example, small companies with an investigational orphan disease drug may find it easier to address the China market earlier in development due to the extensive regulatory advantages for orphan drugs (such as a guaranteed review time of three months versus six months for non-orphan drugs).

In contrast, a large international pharma company with mature products and a well-established sequence of global submissions may be less agile in changing their approach. A company with a portfolio of approved drugs that have yet to enter the China market may need to enter the market cautiously, while taking steps to protect its intellectual property.

4. Be prepared to negotiate steep discounts for coverage.

Drugs that address current unmet medical needs in China (the Chinese Center for Drug Evaluation recently issued a list of overseas drugs it considers “urgently needed”) will have an advantage in winning reimbursement.

However, manufacturers must typically agree to deep discounts to be covered in China’s state-run health care system. According to The Wall Street Journal, AstraZeneca has offered the steepest discount to date (71 percent off list) for its drug Tagrisso to debut on the National Reimbursement Drug List (NRDL) in early 2019.

At the same time, volume will likely offset lower prices: For example, AstraZeneca’s oncology sales in China increased by 55 percent—to $646 million—through the third quarter of 2018, partly underpinned by the launch of Tagrisso, which was approved in March 2017. Sales growth is likely to further accelerate once the drug is listed on the NRDL. The State Council (China’s chief administrative authority) has set up a new bureau to reform market access and drug reimbursement in 2018. The pricing, bidding process, and health insurance policies for medicines in China will soon be managed by the country’s newly established Medicare Insurance Bureau.

Capitalize on China opportunities with a smart, tailored strategy

Companies are increasingly considering China as a first-tier option in new product development. This marks a sea change from when China was primarily known for producing low-cost excipients and active pharmaceutical ingredients (APIs). With an informed approach, companies can deliver both their existing drugs and new products to Chinese patients that need them.

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